Software as a Service (SaaS) companies that are going from their first ten customers to their first five hundred have a lot of issues dealing with exponential growth rate, creating a need for building out robust contract management policies to streamline business processes, cut down on wasted time, reduce risks, and ensure profitable outcomes (i.e don’t get stuck in manual processes). We’ve pulled together some ideas that will guide you through the essential steps to create an effective contract management policy specifically for sales contracts in a SaaS context.
- Understand the Contract Landscape
- Develop Clear Policies and Procedures
- Implement a Contract Management System
- Who should be involved in rolling the process out?
- Revenue Operations Best Practice: Ensuring Contract Profitability
- Legal Team: Minimizing Risk and Ensuring Compliance
Understand the Contract Landscape
Before diving into policy creation, you must understand your contract landscape. This is usually very industry and company specific. This includes recognizing the types of contracts your business handles, their complexity, and the inherent risks involved. For SaaS companies, the primary contract type is the sales contract. These fall into different camps, depending who you’re selling to, enterprise, mid-market, small businesses or B2C. Here, potential challenges, especially in enterprise sales, include data protection, subscription management, service level agreements, and intellectual property rights. By understanding these complexities, you can tailor your policy to adequately cover these areas.
Develop Clear Policies and Procedures
An effective contract management policy begins with clearly outlined policies and procedures. Detail the process of contract creation, review, approval, execution, and post-execution management. One of the most important things here is to have standard language that you use internally and document this. For SaaS sales contracts, attention must be paid to pricing structures, data protection clauses, service level agreements, and terms of service. These procedures should outline the roles and responsibilities of all parties involved, ensuring accountability at all stages. Using a tool like Confluence to document your processes can be very useful.
Implement a Contract Management System
Given the digital nature of SaaS offerings, an online contract management system is crucial, if not standard for companies looking to scale their contracting volume. These systems offer tools for contract creation, storage, tracking, and analysis, making the entire contract lifecycle more manageable and transparent. They also help in tracking key contract metrics such as renewal rates, churn rates, and contract value, essential for a SaaS business’s growth and profitability.
1. Train Your Staff
Your policy is only as good as its implementation. Training your staff on the nuances of your contract management policy ensures consistency and compliance. Training should include not just getting people familiar with documentation but including tool training and exception training also. Everyone involved should understand the importance of contract management, the specific procedures and tools involved, and the use of your chosen contract management system and how it fits into your sales cycle. Regular refresher courses can help keep everyone on the same page.
2. Regular Audits and Reviews
Regular audits and reviews help ensure your policy’s effectiveness and identify areas of improvement. These audits should assess contract performance, compliance with procedures, contract data cleanliness and risk management. Data cleanliness is helped a lot by having a contract management system in place. For SaaS companies, issues like customer satisfaction, data breaches, or any failures in meeting service level agreements need particular attention. Look to develop a contract review process to keep things inline.
3. Establish a Continuous Improvement Process
A contract management policy is not a set-it-and-forget-it tool. It should continuously evolve to match your company’s growth, changes to your sales process and team structure and the changing regulatory and market environments. Establish a process to regularly review and update your policy and procedures based on the audit findings, changing business needs, and feedback from stakeholders.
Establishing a contract management policy and keeping it in one place for SaaS sales contracts is a strategic move that can significantly enhance your business operations, reduce risks, and improve profitability. Remember, the aim is to create a policy that aligns with your business objectives, simplifies processes, and ensures contract compliance. Following these steps will provide a robust foundation for creating an effective contract management policy that will serve as the backbone of your sales and renewals team, making it easier for your SaaS company to scale.
Who should be involved in rolling the process out?
As you scale up there are a number of key stakeholders in this process of getting your legal operations into a good place. These include the revenue operations and legal teams, whose roles are pivotal in shaping a robust contract management process.
Revenue Operations Best Practice: Ensuring Contract Profitability
The revenue operations team, or RevOps, is instrumental in ensuring that the contract procurement to invoicing process not only goes smoothly but also that useful data is extracted along the way. They provide valuable insights into pricing strategies, discount structures, and revenue recognition, all of which should be clearly delineated in any sales contract.
1. Pricing and Discount Structures
RevOps teams leverage data to derive optimal pricing and discount structures that attract customers while maintaining profitability. They are responsible for ensuring these policies are adhered to in all contracts, thereby standardizing the sales process and minimizing revenue leakage.
2. Revenue Recognition
For SaaS startups, subscription-based revenue is key. The RevOps team ensures contracts align with the company’s revenue recognition policies and work the finance team to ensure that stays in line. This is critical, especially considering the stringent guidelines under ASC 606 and IFRS 15 for recognizing revenue from customer contracts.
Legal Team: Minimizing Risk and Ensuring Compliance
While scaling RevOps team focuses on maximizing revenue and improving the sales cycle, the legal team ensures that contracts are compliant with the law, in line with what your companies goals are and minimize risk. Their expertise is vital in establishing a contract management process that protects the company’s interests.
SaaS startups operate in a dynamic legal environment with regulations that vary by geography and industry. The legal team’s role is to ensure all contracts are compliant with the relevant laws, including data protection and privacy laws like GDPR and CCPA, and intellectual property rights.
2. Risk Minimization
Contractual disputes can be costly, both in terms of money and reputation. The legal team drafts contracts to mitigate risk by including clear terms and conditions, dispute resolution clauses, and liability limitations. This can be pivotal when it comes time to raise investment and you experience your first round of due diligence.
3. Intellectual Property Protection
For many SaaS startups, their software is their most valuable asset. The legal team ensures that contracts protect the company’s intellectual property rights, including patents, copyrights, and trade secrets.
4. Collaboration is Key
While the RevOps and legal teams have distinct roles, collaboration between the two is crucial for a successful contract management process. This partnership can balance the drive for revenue with the need for legal protection. You should look to have someone in place to quarter this collaboration.
For instance, while the RevOps team may push for flexible pricing or discounting to close deals, the legal team can identify the potential risks and ensure the necessary clauses are included to protect the company.
5. Training and Implementation
Once the process is established, both teams play a significant role in its implementation. They must train other team members on the procedures and ensure compliance across the organization. Regular audits and updates to the contract management process, conducted by both teams, ensure its continued effectiveness.
Establishing a bulletproof scaling plan for this part of your SaaS startup is a collaborative effort requiring the unique skills of both the revenue operations and legal teams. While the RevOps team ensures that contracts are profitable, the legal team ensures that they are compliant and risk-averse. Their joint efforts create a process that not only safeguards the company’s interests but also drives its revenue growth. Hence, a seamless collaboration between these two teams is the cornerstone of a successful SaaS startup. And when in doubt, ask the question of ‘what will reduce my sales cycle?’.